Bay Area hotels with a combined value that tops $1 billion fell into a morass of loan defaults, a fresh sign of the woes being unleashed by a local economy mired in recession.
At the end of 2009, seven times as many hotels in the nine-county Bay Area had tumbled into defaults on their mortgages than was the case at the end of 2008, a new survey by Atlas Hospitality Group shows.
And plenty of money is on the line. The value of the Bay Area hotels in arrears on their property loans totaled $1.1 billion, according to a report by Real Capital Analytics. That's 12 times the $90 million in delinquent loans for Bay Area hotels in 2008, Real Capital estimated.
"It's pretty bleak," said Alan Reay, president of Atlas Hospitality, which tracks the California hotel market. "We have record revenue declines for hotels. We haven't seen revenue declines like this since the Great Depression."
The weak economy is the primary culprit.
"Leisure travel is way, way down," Reay said. "People who are employed are worried about their jobs and not traveling. People who don't have jobs can't afford to travel. And business traffic is way down. Most companies have slashed their travel budgets."
Fewer people are traveling for business or pleasure, or finding ways to reduce their expenses when they do travel. Cutting back on hotel stays is one way to cope with a downbeat economy.
Numerous inns are engulfed in the financial catastrophe. The owners of 82 hotels in the Bay Area were at least two months behind on their property loans in December 2009, Irvine-based Atlas said. That's up from 12 in default in December 2008.
The latest high-profile hotel to suffer a default is Oakland's Park Plaza Hotel, located at 150 Hegenberger Road, near Interstate 880.
The 189-room hotel's lender, San Joaquin Bank, filed a default notice on a $14 million loan for property owner Oakland Airport Plaza Hotel LP.
An array of financial woes have beset the Park Plaza, said Ram J. Prasad, principal partner for the hotel owners.
"The main problem we are facing is occupancy," Prasad said. "It has been one thing after another."
The problems began in mid-2009. Among the travails: Federal Express cut the number of its pilots that stay at the hotel; a new Holiday Inn opened across the street last summer; Park Plaza is an independent hotel without access to a national reservation system; and the hotel captures less visitors from nearby Oakland airport.
"Whenever I go to that airport, I see hardly any activity there," Prasad said.
During 2009, Oakland Airport passenger volume was 17 percent below the levels for 2008.
Still, perhaps the biggest setback for the hotel may have been produced by the decline in FedEx pilots that stay at the Park Plaza.
In recent years, when the hotel's FedEx business was at typical levels, the Park Plaza captured $150,000 to $170,000 a month in revenue from Fed Ex employees. During the latter months of 2009, that volume nose-dived.
"Now we only get $35,000 to $40,000 a month from Fed Ex," Prasad said. "Sometimes it's less."
The last four or five months, average occupancy at the hotel was around 32 percent. A year or two ago, it was more like 60 percent to 65 percent, Prasad said.
This hotel is far from alone in its difficulties.
Dozens of other hotels in the Bay Area have fallen behind on their mortgage payments. Others have been seized by lenders through foreclosures, county property records show.
And every one of the nine counties had at least one hotel in a loan default, according to figures supplied by Atlas Hospitality.
The East Bay is the hardest hit region — followed by Silicon Valley. The East Bay had at 26 hotels in loan defaults at the end of 2009, including 18 in Alameda County and eight in Contra Costa County. Santa Clara County had 17 hotels in default.
Even regions that harvest plenty of visitors through tourism and entertainment have fallen on hard times. San Francisco had nine hotels in default in December 2009, up from one in 2008. Sonoma County, home to a wine country, rugged coastline and redwood forests, had 12 hotels in default.
The hotels in distress are of different sizes. A number are big. Some are well-known. Among them:
- The 335-room Fremont Marriott Silicon Valley, in default on a $38 million note. The Homestead Village in San Ramon is also default.
- Separately, the Sheraton Pleasanton Hotel, the Coliseum Suites hotel in Oakland, and the Brentwood Hotel in Brentwood were shoved into foreclosure by lenders.
- the Renaissance Stanford Court Hotel and Four Seasons Hotel went into default on their property loans.
- Moorpark Hotel in San Jose, Days Inn on Fourth Street in San Jose, Homestead Studio Suites in San Mateo and Homestead Studio Suites in San Carlos have defaulted on mortgages.
- Casa Madrona Hotel & Spa in Sausalito and the Hilton Santa Rosa are struggling with loan defaults.
"People can't get financing for their hotels when their loans come due," said Jessic Ruderman, senior analyst with Real Capital Analytics. "Sometimes the hotels can't generate enough revenue to make the loan payments."
During the first 11 months of 2009, Northern California room rates averaged $151.82, down 13.1 percent from the same period the year before, PKF Consulting reported. Average occupancy was 72.9 percent, down 8.9 percent from the year before.
The hardest hit areas were Monterey Bay, where room rates fell 15.8 percent, PKF reported. San Francisco and the South Bay were next-weakest, with a 15.1 percent decline. Room rates fell 11.5 percent in the East Bay.
"We will see more hotel properties become distressed," Ruderman said.
